Overseas investors may get access to IDRs

New Delhi: Foreign institutional investors (FIIs) and non-resident Indians (NRIs) may soon be able to buy into Indian depository receipts (IDRs). The ministry of corporate affairs, which administers IDRs, is in touch with the Reserve Bank of India to finalize the rules for the move, a senior government official said.

“It (the move) is expected to be agreed upon,” said the official, who didn’t want to be named.

The long-pending investment relaxation, which was proposed last July and already has clearance from market regulator Securities and Exchange Board of India, will enhance liquidity for IDRs.

IDRs are instruments that allow foreign firms to raise resources in India. The instruments are listed and traded on domestic exchanges like shares.

An announcement allowing FIIs and NRIs to invest in IDRs is expected in the next government’s budget presentation. In addition, the government is also expected to amend rules to ensure parity in the tax treatment of IDRs and equity shares.

According to government officials, UK-based Standard Chartered Bank plans to raise around $1 billion (around Rs5,000 crore) through an IDR issue.

They expect it to be a precursor to issues by financial sector firms and power utilities from countries including the US, the UK, South Africa and Nepal.

India allowed foreign firms to issue IDRs in 2004. However, not a single IDR issue by foreign companies has happened so far due to lack of interest and clarity on the tax treatment of the instrument.